London: European shares retreated on Monday as enthusiasm faded over a European Union deal on greater fiscal integration, with the market unconvinced that the EU has done enough to provide immediate relief to the euro zone’s indebted countries.
Banks and insurers, which have the greatest exposure to euro zone debt, fell more than 2%, giving up most of the gains made on Friday, when EU leaders agreed to pursue stricter budget rules and provide up to €200 billion in bilateral loans to the International Monetary Fund.
“This is all very good but they didn’t do anything about addressing the lack of growth in these economies or their pile of debt, which is only going to take time,” Andrea Williams, manager of Royal London Asset Management’s European Income fund, said.
Williams, whose fund has around £359 million under management across continental equities, kept her cautious stance after the EU announcement, with an “underweight” stance on banks and an “overweight” on defensives such as healthcare stocks , which rose 0.8% by midday, and telecom, flat on the day.
However, the fund manager said she would be prepared to review her stance if the European Central banks agreed to intervene on the monetary and sovereign fronts to avert the prospect of a liquidity squeeze.
“The market wants the ECB either to print money or buy bonds aggressively, and this hasn’t happened. I wonder what they (the ECB) need to see,” she noted.
The ECB cut its interest rate to 1% last week, but president Mario Draghi made clear the central bank would not launch a quantitative easing programme.
Analysts were also calling for the central bank to step in, noting the effects of a credit crunch on the economy would be exacerbated by austerity measures across the euro zone.
“It looks like investors are waiting for some concrete news out of European leaders before they are prepared to commit more cash to equities and, frankly, that seems like a sensible stance,” Charles Stanley said in a note.
The broker set 1,002 points resistance level for the FTSEurofirst 300, with a key support is in the region of 960 points.
In a further sign the euro zone debt crisis was already taking its toll on growth, the Organisation for Economic Cooperation and Development said on Monday all major economies are losing momentum with economic activity across OECD countries at its weakest in two years.
At 07:25 pm, the FTSEurofirst 300 index of top European shares was down 0.5% at 980.65 points, although trading was choppy due to light volumes, as well as options and futures expiry on Friday.
The index was trading at less than a third of its 90-day volume average, in a sign some investors had already withdrawn from the markets ahead of the holiday season.
“The majority of investors are desperately trying to do nothing. They have very low risk positioning and want to maintain it,” Andy Ash, head of sales at Monument Securities, said.